Question

he following table contains information on the marginal abatement costs of four firms, related to the quantity of emissions. Currently, Firm 1 emits 40 tons/week, Firm 2 emits 35 tons/week, Firm 3 emits 30 tons/week, and Firm 4 emits 25 tons/week. Thus, total emissions are 130 tons/week. Suppose the government wishes to reduce total emissions to 60 tons/week.

Emissions	40	35	30	25	20	15	10	5	0
MAC
Firm 1 ($/ton)	0	1	2	3	4	5	6	7	8
Firm 2 ($/ton)	-2	0	2	4	6	8	10	12	14
Firm 3 ($/ton)	-5	-4	0	4	5	6	7	8	9
Firm 3 ($/ton)	-8	-6	-4	0	4	6	8	10	12

Refer to the above information. If the environmental policy follows the equimarginal principle, the marginal abatement costs are ________, ________, ________, and ________ for Firm 1, Firm 2, Firm 3, and Firm 4, respectively.

Select one:

a. 8, 8, 8, 8

b. 4, 4, 4, 4

c. 6, 6, 6, 6

d. 0, 0, 0, 0

Answer 1

According to equimarginal principle.

If the targeted pollution emission is 60 tons/week, then the cost minimizing allocation of abatement would be in the following manner.

Firm 1 emits 10 tons/week at MAC of $6.

Firm 2 emits 20 tons/week at MAC of $6.

Firm 3 emits 15 tons/week at MAC of $6.

Firm 4 emits 15 tons/week at MAC of $6.

Answer: option (c)